The looming “water gap”

November 23, 2009

There’s good and bad news from a sweeping new report on the world’s water scarcity out today from McKinsey & Co., commissioned by such water-dependent companies as Coca-Cola, Nestle, SAB Miller and Syngenta, along with the World Bank/International Finance Corp.

The bad: Global demand for water already exceeds supply—about 1.1 billion people don’t have access to clean water—and the so-called water gap is increasing at an accelerating rate.

The good: Cost-effective, sustainable solutions are available to close the gap, particularly if governments and business focus on reducing demand rather than trying to generate additional supply.

The challenge: Getting beyond the nostrum that water is a “human right” so that water, which is obviously a scarce resource, can be priced in a way that drives conservation.

One more thing to know: Water issues are at least as complex as energy, and all water problems are local, so generalizing about water, while inevitable, is invariably misleading.

As Martin Stuchtey of McKinsey put it: “We are not saying there is one way to close the water gap, and we fully acknowledge the complexity of the water arena.”

The 185-page report, published by the 2030 Water Resources Group, was released this morning at a sparsely-attended news conference at The World Bank. While water isn’t a headline-grabbing topic, it’s emerging as a real business risk. Recently the Carbon Disclosure Project, a coalition of institutional investors that asks global companies to measure their greenhouse gas emissions, said it would undertake a similar effort for water usage. And press releases from NGOs the India Resoure Center. which is targeting Coca-Cola, arrive regularly in my email, posing pesky reputational issues for global brands.

Water shortages will also create business opportunities, which explains the presence of Michael Mack, the CEO of Syngenta, at today’s event. A Swiss-based agribusiness firm, Syngenta is developing genetically engineered, drought-resitant strains of wheat and corn.

“They are literally two years away,” Mack said. Biotech crops, he said, will help not only in poor countries but in water-rich regions of Canada and Russia which will be able to grow more wheat per acre, then sell the output to countries that water-constrained. “Getting more productive agriculture on the existing farmland is the highest priority,” Mack said. This is known in the trade as more crop per drop.

Because agriculture accounts for about 70% of global water use, biotech crops could have a big impact on the water gap. But they will only scale up if governments and environmental groups, particularly in Europe, can be persuaded that genetic engineering will generate more good than harm—no easy matter.

Mack and Peter Brabeck-Letmathe, the chairman of Nestle, who joined in the news conference by phone, both questioned whether the idea of water as a “human right” is useful way to frame the conversation. (Nestle, it must be noted, is the leading U.S. seller of bottled water through such local brands as Deer Park and Arrowhead, and as such it has come under considerable fire.)

Brabeck-Letmathe said people have a right to water for their basic needs—perhaps 25 liters a day. But he argued that adequate pricing of water will be needed to curb waste. “It’s not a human right to wash your car, to fill up your swimming pool, to water your golf course,” he said.

Some countries are smart about pricing. tool. In South Africa, according to Brabeck-Letmathe, residential users are given a monthly allocation of “free” or subsidized water—presumably enough for drinking, cooking, bathing and sanitation—and then charged a premium for usage beyond that.

By contrast, the McKinsey executives and others said that free or subsidized electricity in rural India contributes to water shortages there because farmers have no reason not to pump as much water as they can out of the ground.

Even normally-cautious development executives said that markets have a role to play in allocating a scarce commodity like water. “Demand is outstripping supply, especially in developing countries,” said Lars Thunell, CEO of the IFC.

Pricing alone, though, won’t solve the water crisis, as McKinsey executives explained to me after the event. We talked about drip irrigation—basically pipes with holes–which is both a more effective and more efficient way to deliver water and fertilizer to crops. The payback on investment in drip irrigation is quick, sometimes as little as one year.

The trouble is, subsistence farmers in poor countries India don’t have the capital to invest in a drip irrigation system, so charging them more for water won’t do any good. They may need access toifinancing, or the ability to share the costs of an irrigation system with neighbors, or government or NGO subsidies for the pipes, which would provide a more sustainable solution that subsidizing electricity or water.

There’s much, much more in the McKinsey report, which focuses on four countries with big but differing water issues—China, India, South Africa and Brazil. Collectively, they will account for 40% of the world’s population, 30% of global GDP and 42% of projected water demand in 2030.

That doesn’t mean that water isn’t an issue for those of us fortunate enough to have access to cheap, clean water. If you haven’t noticed, California is suffering from several years of drought, which will eventually drive up the costs of groceries for anyone who wants to consume fresh fruits and vegetables year round.

By the way, do you have any idea how much you pay for water? I certainly don’t. Before too long, I bet we all will.

Comments

excellent article and thank you. . That water is a human right must be foremost and be right up there with basic human rights, including clean air and food. The extraction businesses, hoarding and damming of waters needs to become internationally regulated. Extraction etc needs to be always studied as to the destruction of the eco systems impacted and also the cost of bottling and shipping. It is important to frame a discussion around how we need to figure out how to collect, reuse and recycle water from roads to all aspects of the built environment Every place, city etc needs to evolve to living off their foot print, IE collecting storm water, recycling grey waters and limiting the extent that they suck water off from far way places and that includes NYC, Beijing, and the like The water issues becomes less complex if the principles upon which we live, build etc are shifted and changed. Commodifying water is not the solution.

I just watched a documentary yesterday called FLOW – For the Love of Water. It was about how billions of impoverished people do not have access to safe drinking water and how multinational water corporations are only helping the rich. The documentary reminded me of how important safe drinking water is and how much I take it for granted.